RH Shares Soar as ‘Grand Slam’ Earnings Wow Wall Street

(Bloomberg) -- RH reported first-quarter results that topped expectations and boosted its forecast, a stellar print that comes three months after the retailer severely disappointed investors when it reduced the year outlook.

This was a “grand slam beat” for the company formerly known as Restoration Hardware, wrote JPMorgan’s Tami Zakaria. And as a result, the shares rose as much as 28% Thursday to the highest levels since the fourth-quarter report on March 28.

While results and guidance were better than expected and new concept RH Beach House is off to good start, execution remains a headwind and macro concerns loom, analysts said. And with nearly a third of float being held short, some of the share rise may be bears scrambling to cover their positions.

Here’s what Wall Street has to say:

Guggenheim, Steven Forbes

“Although end demand uncertainty was elevated heading into 1Q earnings, RH delivered an impressive ‘beat and raise,’ further confirming our belief that the company remains in the early phases of disrupting the global luxury home furnishings industry.”

“RH’s broad-based focus on innovation and integration has created a platform with differentiated a) scale, b) product breadth and quality, c) customer service capabilities, and d) speed-to-market, positioning the brand for sustainable, profitable secular share gains.”

Rates buy, price target $150.

Citi, Geoffrey Small

“Solid 1Q beat and raise should help alleviate pressure on stock.”

“7% revenue growth in 1Q was particularly encouraging given the weaker-than-expected 4Q18 result, the headwind from the discontinuation of certain offerings, macro concerns, and the challenged results seen for other retailers in the sector, outside of Williams-Sonoma.”

However, RH has pushed the openings of its San Francisco and Charlotte galleries to the first quarter of 2020 from the fourth quarter of this year. “Given similar delays for most of RH’s new galleries, it remains to be seen whether RH can ramp to its target for 7+ openings by 2020.”

“Achievement of the sales target will depend on the ramp of store openings, but we continue to like RH’s gallery transformation, new product/service offerings, international expansion plans, SG&A and occupancy cost leverage prospects, capital-light real estate options, and fulfillment changes.”

Rates buy, price target $148 from $157.

Bloomberg Intelligence, Seema Shah

“RH’s fiscal 2019 guidance gives us greater confidence that the optimization of its real estate and operating model is working, but stock-market volatility and tepid global sentiment may pressure future results.”

“New galleries and product introductions, including RH Beach House, seem to be resonating with consumers.”

“Revenue growth may be determined by price hikes, not units, with new assortments and the 25% China tariff affecting 40% of RH’s purchases. The goal is keeping gross margin intact.”

“The slowdown in foreign tourism and global macroeconomic uncertainty remain headwinds.”

Deutsche Bank, Mike Baker

“One quarter after a big miss and guide down, RH delivered a very solid beat and raise. As a result, the stock is likely to make back much of the decline since their last report.”

“After a quarter setback, this quarter makes the long-term outlook more achievable. But, we do believe that the volatility in the business, primarily associated with external factors out of RH’s control, but nonetheless impactful, will keep the multiple below our modeled long-term growth rate.”

Rates hold.

Cowen, Oliver Chen

“Following a weak 4Q and low expectations, RH delivered a strong quarter with revenue upside driven by stabilizing stock market.” Sales cadence improved and margins showed “strong expansion.”

“EBIT margin also beat and guidance was raised on increased confidence and early constructive reads into RH Beach.”

Third tranche of tariffs most impactful to RH and is embedded in guidance; fourth tranche will not have a significant impact to operations.”

“We remain on the sidelines as the underlying business appears volatile and we look for signs of continued execution.” Rates market perform, price target $120.

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Will Daley

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